When USDA announced changes in its crop reports in July, Agriculture Secretary Sonny Perdue boasted that modern technology ensured everyone had equal access and a level playing field when it comes to tapping USDA’s major market reports.
Yet, earlier this year, Perdue said poor internet access is one of the worst problems in rural America.
DTN/The Progressive Farmer has been asking more questions about what drove the decision to eliminate us and several other news agencies from early access to major crop reports such as the monthly “World Agricultural Supply and Demand Estimates” (WASDE). DTN/The Progressive Farmer also has been questioning the market benefits by taking away early reporter access.
DTN/The Progressive Farmer is one of a handful of news services that has attended the lockup for more than a decade to provide thousands of market-driven customers with the latest world supply and demand estimates in a swift, readable format once USDA allows news outlets to transmit that data.
Everybody, according to USDA’s new process, will just visit their website at 12:00 p.m. EST and download the available key market reports, such as the monthly WASDE.
“Everyone who has interest in the USDA reports should have the same access as anyone else,” Perdue says about the change in crop-report procedures. “Modern technology and current trading tactics have made microseconds a factor. This change addresses the ‘head start’ of a few microseconds that can amount to a market advantage. The new procedures will level the playing field and make the issuance of the reports fair to everyone involved.”
Last January, USDA and Secretary Perdue released the results of a Trump administration study, the “Interagency Task Force on Agriculture and Rural Prosperity.” Perdue said at the time the lack of rural broadband was the “one overarching challenge that we must overcome to ensure rural prosperity.” The task force’s first recommendation was to expand e-connectivity in rural and tribal areas.
The issue of bad internet access in rural America was effectively dismissed by USDA leaders who believe everyone will have “equal access” to crop reports at 12:00 p.m. EST on report days.
According to a Federal Communications Commission (FCC) report on broadband earlier this year, 30.75% of Americans in rural America and 35.4% in tribal lands lack access to broadband internet, defined as 25 Mbps. That compares to 2.1% of Americans in urban areas. Dozens of U.S. senators and some trade associations have argued the FCC is actually lowballing just how poor internet access is in rural America.
USDA made its change in report access for the Aug. 10 WASDE and “Crop Production” reports because of what USDA officials point to as a two-second volume of trade that happens right at noon EST when the crop report is released. That’s become part and parcel of the high-frequency trading game, and USDA offered no explanation how exactly that would change by sending everyone to a USDA server at 12 p.m. EST to get the crop report.
HIGH-SPEED TRADE WILL CONTINUE. USDA, questioned about the new report policy, told DTN/The Progressive Farmer, “Evidence suggests that clients of news agencies receive faster access to USDA data than the public.” The inference is that without the headlines and keywords that early access by media creates, high-frequency trading and the profits made from it will end.
The Congressional Research Service (CRS) says high-frequency traders employ a range of tactics that may have nothing to do with actual numbers in a crop report. In an April 2016 report on high-frequency trading, the nonpartisan CRS highlighted aggressive trading strategies meant to generate profits on spreads and rapid trades. Those included “order anticipation” and “momentum ignition” strategies. The CRS report notes, “In fact, corn, the largest grain futures market, averaged more than five such events per year over the last five years,” according to comments by former U.S. Commodity Futures Trading Commission chairman Timothy Massad. At the time, Massad noted these increased flash events would continue in commodities.
Joseph Janzen, a professor of agricultural economics at Montana State University, says it’s unclear whether high-frequency traders are moving based on rapid headlines, or if some simply start momentum strategies in the milliseconds following report release time to move the market the way they want quickly. There hasn’t been enough study done on high-frequency traders to understand motivations at these firms, Janzen says.
“For anyone who has some sort of automated or algorithmic trading system where they are essentially letting a computer trade based on some instructions, how USDA puts out the report is meaningless,” Janzen says. “It doesn’t matter.”
Janzen added, “I see sort of the motivation that one way to access the report is the most fair, but some traders will have a speed advantage. We know that, and there are guys who will have made the investment to get a speed advantage. That will always be the case.”
READY FOR THE LOAD? USDA maintains it is improving its ability to provide the information to the public, handle the increase in load volume on its website and keep the data secure. But, USDA officials gave no details on what they’ve done to stress-test their system, nor when that work was completed.
While high-frequency traders will change their game, more than 4,000 local grain elevators and thousands more brokers, farmers and livestock producers are going to be searching for that WASDE data on USDA’s website while often relying on internet service that Secretary Perdue says isn’t good enough for the modern world.
Angie Setzer, known on Twitter as @GoddessofGrain, lives in Iowa but works for a Michigan grain company. Setzer typically gets her WASDE information directly off USDA’s website after seeing early flash data come across Twitter just after the report is released. She then attempts to pull the actual report off USDA’s website. Setzer has a problem downloading that data off USDA’s website “just about every time I do it.
“I would say nine times out of 10, I’m not able to access the actual website info for a couple of minutes, at least,” Setzer says. “It’s almost a guarantee I’m not going to get it right away. Twitter is actually faster than using their [USDA] website.
“You already see the market react prior to the report coming out. Now, it will be even further because everyone will be trying to access it,” she says.
Following USDA’s change with the Aug. 10 WASDE and Crop Production reports, farmers and grain traders will have to see whether the change in crop reports has an impact on the market.
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